Volume II - PDF - International Association of Deposit Insurers

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•BACKGROUND DOCUMENTS• Part II: Outreach Executive Summary The conference brought together practitioners of deposit insurance who were also members of the Working Group on Deposit Insurance (WGDI) of the Financial Stability Forum (FSF) and a distinguished panel of academic, regulatory and industry discussants. The WGDI presented four draft issue papers that it regards as crucial to the determination of the guidance that it had committed to offer to the FSF by late summer 2001 to aid countries that were considering initiating or revising a system of deposit protection. The papers discussed (1) public policy objectives for deposit insurance, (2) situational analysis of a country’s readiness for deposit insurance, (3) options for containing moral hazard, and (4) issues relating to the transition from blanket guarantees to limited coverage. In their comments, the discussants lauded the WGDI on its willingness to take on an important, but extremely complex, subject. The discussants noted that the development of guidance on deposit insurance was made more difficult by the many tradeoffs involved and by the interface between related economic and political constraints. The discussants complimented the presenters on their comprehensive listing of relevant issues in each of the four papers, but particularly in the paper on identifying deposit insurance objectives and the one on options for containing moral hazard. The discussants made a number of suggestions for improving the papers. First, several panel members questioned the WGDI’s interpretation of two aspects of its mandate. First, the Working Group stated that it did not intend to set standards or develop best practices. It asserted that each country’s circumstances were unique and that countries must choose their own path toward setting and achieving their deposit insurance objectives. Messrs. Eisenbeis and Evanoff disagreed and suggested that the WGDI needed to do more than offer a list of alternatives for countries to choose from at will. Instead, more specific guidance was needed in the form of a blueprint for one or more integrated deposit insurance systems. In addition, Mr. Eisenbeis and Professor Roberts, through Mr. Bliss, were concerned about the charge that the Working Group was working under—to give guidance only on how to fashion an explicit system of deposit insurance. The three discussants considered that it was essential to ask first whether explicit coverage was optimal and to question whether implicit insurance would be preferable when necessary preconditions for successful explicit coverage had not been met. 1 Messrs. Eisenbeis, Evanoff, and Hunter, and Professors Kaufman, Kroszner, and Pennacchi observed that the Working Group’s recommendations were very general and they urged it to give more emphasis to concrete and definitive advice so that those putting a deposit insurance system in place would know specifically what features might suit their country’s needs. Messrs. Eisenbeis and Evanoff also called on the group to identify the key elements that would guide a country in selecting among the many paths to deposit protection that were available. Professor Kaufman observed that giving specific advice would become easier if it were grounded more on academic research, both theoretical and empirical. Professors Kroszner and Roberts and Messrs. Bliss and Evanoff agreed with Professor Kaufman that the WGDI needed to pay more attention to previous research findings on deposit insurance. Professors Kaufman, Kroszner, Pennacchi and Roberts and Messrs. Bliss and Tannenbaum called on the Working Group to give greater emphasis to private market forces in disciplining the markets and replacing the government’s role in achieving the objectives attributed to deposit insurance, particularly in protecting small depositors and promoting financial stability. 160 Guidance for Developing Effective Deposit Insurance Systems: Volume II
•BACKGROUND DOCUMENTS• Part II: Outreach A number of discussants referred to the political dimensions of making choices on deposit insurance objectives and design. Messrs. Eisenbeis and Tannenbaum cautioned country authorities not to overreach in setting objectives for deposit protection and suggested that the Working Group could usefully give guidance on the advisability of selecting certain objectives and the feasibility of achieving them. Professor Kaufman noted that time inconsistency was a problem in that politicians could readily foresee the short-term advantages to deposit insurance while overlooking its longer run pitfalls. Both Mr. Bliss and Professor Roberts (in his prepared remarks) noted that decisions on deposit insurance could be path-dependent, i.e. the right choice might depend on the starting position. Conference participants felt that the exchange of views between practitioners and academics had been worthwhile and should continue. 161 Guidance for Developing Effective Deposit Insurance Systems: Volume II
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III Feedback
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•BACKGROUND DOCUMENTS• Part III
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FINANCIAL STABILITY FORUM Guidance
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